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Household Formation to Outpace Apartment Boom

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A big growth in new household formation is expected to drive up housing starts in the new year that will outpace the apartment boom, according to forecasts by Freddie Mac’s Chief Economist Frank Nothaft.

Nothaft is forecasting a net growth of 1.2 to 1.25 million new households in 2013 that will provide a big boost to housing starts next year. That expected growth also will likely drive down apartment vacancy rates to 10-year lows and outpace the boom in new apartment construction, Nothaft says.

Unemployment is expected to improve slightly in 2013 and the job and income gains will help jump-start more household formation, according to Nothaft. Also, more adult children who took up residence in their parents' homes are expected to move out next year, helping to increase household formation.

“The last few months have brought a spate of favorable news on the U.S. housing market with construction up, more home sales, and home-value growth turning positive,” Nothaft says. “This has been a big change from a year ago, when some analysts worried that the looming ‘shadow inventory’ would keep the housing sector mired in economic depression. Instead, the housing market is healing, is contributing positively to GDP and is returning to its traditional role of supporting the economic recovery.”